Category Archives: Europe

Ukraine: A battle for the future of Europe


From Yuriy Gorodnichenko:

Squeezed between European super powers, Ukraine is no stranger to tensions, but it has been a remarkably peaceful country in the modern history. The recent waves of protests and government-sponsored violence moved Ukraine to the brink of a civil war with far-reaching consequences for Europe as well as Russia and other post-communist countries in the region.

The Yanukovich Era and the uprising

How could Ukraine get into such a terrible state? What can happen next and what can be done to save peace in this country with a population of 45 million people?

aerial photo of protest

When Ukraine separated from the former Soviet Union in 1991, it marked its first real era of independence since World War I. While other former Soviet states immediately found themselves controlled by corrupt and dictatorial regimes, Ukraine stood out in the strength of its political institutions and civil liberties.

The attachment of the population to the democratic process was illustrated most vividly in 2004 when Viktor Yanukovich –- at the time Ukraine’s prime minister –- first tried to be elected president through electoral shenanigans. That effort was met with widespread popular protests , dubbed the “Orange Revolution, ” which forced new (and fair) elections and the defeat of Yanukovich in favor of Victor Yushchenko, then a leader of the opposition and the freedom movement in Ukraine.

Unfortunately, political divisions among the Orange Revolution’s reformers generated a popular backlash, through which Yanukovich was legally elected president in 2010. Since then, he has systematically undermined the constitutional process and the rights of individuals in Ukraine. For example, political power has become increasingly concentrated in the hands of Yanukovich and his inner circle, virtually replacing the constitutionally-enshrined parliamentary nature of government with a presidential regime.

This concentration of power has been matched by rising levels of corruption, enriching Yanukovich’s family and inner circle while the Ukrainian economy has become progressively more impoverished. Television and radio stations are under the almost-exclusive control of the ruling party. Political opponents, such as the former Prime Minister Yulia Timoshenko, have been jailed and beaten. The rights of individuals have been increasingly curtailed, with new laws passed limiting freedom of speech, freedom of association and freedom of movement.

The recent protests began rather innocuously, as a result of Yanukovich turning away from accession to the European Union in response to an offer of financial aid and gas subsidies from Russia. But the heavy-handed response of authorities, including violent attacks on protesters, transformed a small-scale protest into a general popular uprising with hundreds of thousands of people descending daily on the main squares of Kiev and other Ukrainian cities in the middle of the bitter cold Ukrainian winter and the persistent risk of being beaten, imprisoned, and tortured.

A rising number of protesters have met with an increasingly violent response by authorities, including widespread arrests, torture and death. But as the protests have continued to grow, Yanukovich has begun to appear to cede some ground, with his prime minister resigning and some of the more heinous laws restricting personal freedoms being abridged. However, even now it’s not clear how sincere his moves are and if he is not just trying to buy himself some time to consolidate his powers for another crackdown on peaceful protesters.

Why lies ahead?

Given the size and intensity of recent protests, combined with the visible desperation of authorities, one can foresee at least four scenarios for the future of Ukraine.

1.  A peaceful, political resolution: The most positive outcome is one in which Yanukovich accedes to immediate and free elections which put in place a new administration committed to rebuilding the institutions and civil liberties for which Ukrainians have fought so hard. But as discussed below, achieving such an outcome will not be easy, and failure could lead to other, less desirable outcomes.

2.  A bloody victory for the protesters: If the authorities continue to respond to protesters with  violence and torture what has so far remained a remarkably peaceful protest movement could rapidly become much more violent. There are certainly among the protesters some who would prefer to fight more aggressively against the authorities, and further provocations by the police or armed gangs hired by the government could give them cause to lash out. Violent uprisings have in the past often meant unsavory endings for authorities (e.g. Ceaucescu, Qadaffi), and the consequences of such an outcome would likely cast a long shadow over the future of the Ukrainian political process.

3.  A victory for the regime: Yanukovich has already tried to buy out and divide the leadership of the protest movement by offering them prominent political roles, but this wooing has had little success. Given that protests have not faded despite the cold and the brutal response of the regime, a scenario in which protests peter out quietly is unlikely. But, if backed into a corner, the regime’s armed forces could overwhelm protesters and ensure the continuation of the regime. This would almost ensure that Yanukovich would reinforce his hold on power and become a dictator. The consequences for the Ukrainian people would be dire.

4. A civil war: The most dire outcome is one in which Yanukovich tries to put down the protests violently but unsuccessfully, thereby generating a civil war between the Ukraine’s Western and Eastern regions. A violent and persistent struggle between these factions would induce large-scale refugee movements into neighboring countries, instability on the border of Europe and Russia, and possible proliferation of the arms and nuclear materials currently held in Ukraine. This outcome could be catastrophic not just for Ukraine, but for the entire region (just imagine Syria in Europe with European energy supplies from Russia being cut).

What will success look like?

Achieving a successful and peaceful outcome appears to require that Yanukovich deliberately and willingly agree to surrender political power. Because this political power ensures both his wealth and personal protection, as well as that of his family and associates, achieving this outcome is fraught with difficulties. But the strength and endurance of the protest movement has made this unlikely outcome a possibility. Achieving it, however, will likely require several additional steps.

First, the international community can help by reducing the benefit Yanukovich receives from holding power. For example, countries can freeze foreign assets held by Yanukovich and his family. The international community can also help make a peaceful transition more likely by undermining the sources of support to the Yanukovich regime. For example, some of the oligarchs that have supported Yanukovich so far have been reticent to oppose the protests. Many could likely be induced to support a transition if access to foreign markets was facilitated for Ukrainian companies, or if economic assistance is provided to the Ukrainian government during the transition period.

Because Russia is unlikely to continue its aid to Ukraine during a transition (and may likely try to hamper the transition itself), it will be essential for the international community to make up for this negative shock. The U.S. and Europe could threaten to freeze assets of oligarchs abroad, and restrict their travel to foreign countries if support for a transition process is not forthcoming. Finally, the international community must stand up to Putin directly to ensure that Russia does not unduly pressure or influence the situation in Ukraine.

The Ukrainian people are, of course, the primary agent through which change can happen. And their behavior during this difficult time, particularly in the face of appalling behavior by authorities, has been exemplary. Continuing to ensure that protests remain peaceful is central to enabling a peaceful exit by Yanukovich. Street violence and the threat of retribution would likely induce Yanukovich to instead cling to power.

So facilitating the protest movement –by providing financial aid, doctors, supplies, etc.–is a key contribution by the international community to a successful transition in Ukraine. Public backing, such as U.S. Sen. John McCain’s (R-Ariz.) recent visit to Maidan Square in Kiev, also provides direct support to protesters who are engaged in a long and brutal struggle and for whom sustaining their morale cannot be underestimated.

A successful outcome in Ukraine will be a victory for the forces of peace and democracy. The international community can help both through official policies of the U.S. and European governments and through the support of individuals. World War II and the Cold War were ultimately victories for freedom, but the struggle actually continues today in many countries. The international community should support those who continue this battle. Today’s front line is Maidan Square in Kiev, Ukraine.  Success of protesters in Ukraine could be as important as the fall of the Berlin Wall was for the modern Europe.


Ukraine: A battle for the future of Europe
Sat, 22 Feb 2014 22:14:28 GMT


John Maynard Keynes, Investment Innovator


When I think of John Maynard Keynes as an investor, a few images and thoughts run through my mind. 
One image is an insouciant and self-satisfied global citizen, making global investments while sipping tea in bed. In his 1919 essay, The Economic Consequences of the Peace, Keynes painted a picture of what the world economy looked like before 1914. He wrote:

“The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.”

A second thought is how very difficult it is to make money in the stock market, because you are essentially trying to pick the stock today that other people think will want to buy at a higher price tomorrow. In the General Theory, Keynes offers a famous metaphor:

“[P]rofessional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole, not those faces which he himself finds prettiest, but those which he thinks likeliest to match the fancy of the other competitors, all of whom are looking at the problem from the same point of view.”

Finally, I also think of Keynes as a legendarily successful investor, and in particular how he grew the endowment of King’s College.  I don’t think he did all of it sipping tea in bed, nor by thinking about investing as a beauty contest. In fact, I had no real idea how Keynes succeeded as an investor until reading the article by David Chambers and Elroy Dimson, “Retrospectives: John Maynard Keynes, Investment Innovator,” in the most recent issue of the Journal of Economic Perspectives. (Like all articles appearing in  JEP, it is freely available on-line courtesy of the American Economic Association. Full disclosure: I’m the managing editor of the journal.) Here are a few insights from their article (as always, with citations and notes omitted for readability):
Over the entire time period, Keynes was wildly successful as an investor.
“When John Maynard Keynes managed the endowment of King’s College at Cambridge University, the actively managed part of his portfolio beat the performance of the British common stock index by an average of 8 percentage points per year from 1921 to 1946.”
Keynes was one of the first institutional investors to move heavily into stocks.
“Keynes was among the first institutional managers to allocate the majority of his portfolio to the then-alternative asset class of equities. In contrast, most British (and American) long-term institutional investors of a century ago regarded ordinary shares or common stocks as unacceptably risky and shunned this asset class in favor of fixed income and real estate. … To our knowledge, no other Oxbridge colleges made a substantial allocation to equities until the second half of the twentieth century. In the United States, the largest university endowments allocated less than 10 percent to
common stock in the 1920s (on a historical cost-weighted basis), and this total only rose above 20 percent in the late 1930s.”
However, Keynes performed poorly as an investor for the first eight years or so.
“The year-by-year results also show that Keynes underperformed [a comparable market index] in only six out of the 25 financial years and that four of those years occurred in the first eight years of his management of the Discretionary Portfolio. By August 1929, he was lagging the UK equity market by a cumulative 17.2 percent since inception. In addition, he failed to foresee the sharp fall in the market the following month.”
Keynes dramatically shifted his investment philosophy around 1930, switching from a market-timing macroeconomic approach to becoming one of the first “value” investors.
“Keynes independently championed value investing in the United Kingdom at around the same time as Benjamin Graham was doing so in the United States. Both Keynes’ public statements and his economic theorizing strongly suggest that he did not believe that “prices of securities must be good indicators of value” (Fama 1976). Beginning as a top-down portfolio manager, seeking to time his allocation to stocks, bonds, and cash according to macroeconomic indicators, he evolved into a bottom-up investor from the early 1930s onwards, picking stocks trading at a discount to their “intrinsic value”—terminology he himself employed. Subsequently, his equity investments began to
outperform the market on a consistent basis.”
Keynes’ overall portfolio was far from an index fund: he concentrated on a relatively small number small and medium-sized firms in certain industries.
“[T]he majority of his UK equity holdings were concentrated in just two sectors, metal mining—tin mining stocks in the 1920s and gold mining stocks in the following decade—and commercial and industrial firms …  Banking carried an index weight of 20 percent, and Keynes had little or no exposure in this sector. … Keynes’ substantial weighting in commercial and industrial stocks began in the early and mid-1920s with a diversified portfolio of industrial names. However, soon thereafter he concentrated his exposure in this sector on the two leading British automobile stocks, Austin Motors and Leyland Motors. In the context of the time, these would have been viewed as “technology” stocks. In terms of firm size, Keynes had a decided tilt towards mid-cap and small-cap stocks.”

John Maynard Keynes, Investment Innovator
Timothy Taylor
Fri, 16 Aug 2013 16:04:00 GMT

The Military Gap between the US and Europe

I’ve heard it suggested that our European allies’ armies army are not in a league with that of US.  I didn’t have any knowledge to dispute or accept that, but New Republic, hardly a right wing rag, seems to concur about this weakness of our social democratic friends across the Atlantic.


Open Wide

Published on The New Republic (

How Libya revealed the huge gap between U.S. and European military might.

Lawrence F. Kaplan April 26, 2011 | 12:00 am

In 1992, the foreign minister of Luxembourg, Jacques Poos, declared that “ the hour of Europe” had arrived. The minister pronounced this falsehood in relation to the catastrophe in Bosnia, where, he assured, the reach of Luxembourg and that of its European neighbors would soon put an end to the slaughter. The hour of Europe stretched across three sickening years, culminating in the spectacle of Dutch troops cuffed to lampposts and ending only when an American column of 70-ton tanks from the First Armored Division crossed the Danube.
Fast forward to 2011. News of the hour of Europe has been supplied once more, this time in Libya. The Europeans haven’t declared it so; President Obama has. Going a step beyond President Clinton, who pledged to gruesome effect that it wouldn’t be our troops venturing into Kosovo, President Obama—after conducting a de facto plebiscite on the advisability of military action against Libya—vowed, “It is not going to be our planes
maintaining the no-fly zone.” Instead, we would surrender command and control functions to “NATO,” an otherworldly organization that, it was soon revealed, we command and control. Thus, the administration argued itself into a “surgical” campaign of only a few days and a few hundred sorties. This effort, dubbed Operation Odyssey Dawn by the Pentagon, would, at most, “diminish” Libyan capabilities. The charge of dislodging Muammar Qaddafi, or whatever the point of the exercise was meant to be on a given day, would be left to our European allies. Or, as Antony Blinken, Vice President Biden’s national security adviser, put it in The New York Times on Sunday, “We did lead—we cleared the way for the allies.”

There’s just one thing: The allies don’t have spare parts.
But this is a problem for the mechanics. The president, after all, has inaugurated “a new era of international cooperation” and has said it would be best for America “to act multilaterally rather than unilaterally.” This paradigm responds to multiple needs unrelated to national security as such. It testifies to the virtue and good intentions of its architects. It offers assurance that U.S. military power serves not only national interests but also the interests of all humanity. No one has espoused this view more vigorously than Hillary Clinton. According to the Secretary of State, “We know our security, our values, and our interests cannot be protected and advanced by force alone nor, indeed, by Americans [alone].” Alas, and however respectful of the tenets of enlightened liberalism all this may sound, it provides no adequate response to a dilemma that is the stuff of structure and concrete, not ideology: Libya has exposed the true extent of what defense experts refer to as the “capabilities gap” between Europe’s and America’s military forces.
A campaign devised to showcase the benefits of multilateral action has done exactly the reverse.
1 of 3 4/27/2011 8:02 PM

A Journey: My Political Life by Tony Blair

I got interested in this book by watching an interview with Tony Blair on the Daily Show.  I was also interested in his defense of the Iraq, that I thought was a terrible mistake, but I am also willing to think I could be wrong.  The ultimate result of the Iraq war is likely to bad, but it is pure hubris on anyone’s part to be certain of anything about that war.  As a one time supporter with profound buyer’s regret, I can’t seem to get away from the subject.

So what did I learn?  Pretty much that as I said we don’t know what the consequences of the war will be.  He suggests that if we hadn’t dealt with Saddam in 2003 we would have just done so later.  He relates a number of stories of Iraqis, that leave no doubt about what a monster Saddam Hussein was. 

On the other hand he admits to every day asking given the bloodshed, the lack of WMD, the terrorism:  would he do it again?  Also, one gets the general sense that Britain, while ultimately supportive at great cost to Tony Blair of the US’ war, held out for more time and diplomacy than the Bush administration supported.  He also wanted a role for the UN in post war Iraq over the opposition of not surprisingly, Dick Cheney.

Overall he had more ambivalence about this than the Americans and likely more still now.   She sums this up pretty well with this story:

I still keep in my desk a letter from an Iraqi woman who came to see me before the war began.  She told me of the appalling torture and death her family had experienced having fallen foul of Saddam’s son.  She begged me to act.  After the fall of Saddam she returned to Iraq.  She was murdered by sectarians a few months later.  What would she say to me now?

He makes as good case for the war as you can make I think.  But even then his is far from sure.  The costs of that war are very clear, and its benefits uncertain at best.  I wish we hadn’t done it.

Though he considers himself a progressive, he spends a lot of time on post partisanship writing:

Defining where you stand by reference to the opposite of where the other person stands is not just childish, it is completely out of touch with where politics is today….the real risk-right or left-is that at the very moment when the public has lost its enthusiasm for traditional political divisions, the parties and their activists become more obsessed with them.

I’d like to think public discourse and politics should be more about building consensus or at least compromise that has at least willingness to tolerate.  These days it talked about more like war:  lets crush the opposition, they have nothing useful to say.

The US: The world’s manufacturing juggernaut

From the Boston Globe of all places:

Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent. China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.

“The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated,’’ says economist Mark Perry, a visiting scholar at the American Enterprise Institute in Washington. “America still makes a ton of stuff, and we make more of it now than ever before in history.’’ In fact, Americans manufactured more goods in 2009 than the Japanese, Germans, British, and Italians — combined.

American manufacturing output hits a new high almost every year. US industries are powerhouses of production: Measured in constant dollars, America’s manufacturing output today is more than double what it was in the early 1970s.

HT:  Greg Mankiw

PS.  The four countries mentioned in paragraph two have a combined population greater than the US.

The world’s manufacturing juggernaut
Sun, 06 Feb 2011 17:30:40 GMT


“Europe knows nothing of liberty and freedom” was asserted in a comment on another blog.

The Magna Carta? The American revolution was at least part driven by colonists feeling they were being deprived of their rights as Englishmen.

France played a crucial role in the success of that revolution.

Thousand of Germans risked their lives to escape across the Berlin wall.

Greece is the birthplace of democracy.

Many Hungarians risked their lives in a hopeless and short lived revolution against the Soviets in 1956. I could go on but I think you get the point.

Obviously in Europe’s long history there are a lot of couterexamples such as Nazi Germany, Napoleonic France and Soviet Russia. In fact that should remind us that freedom can be lost.

But I don’t think it follows that Europeans are just mindless, weak and willing pawns of the state, so as soon they do something that proves it’s a bad idea, or at least inconsistent with “freedom”.